SEOUL, South Korea --Amid a row over its nuclear weapons program, North Korea's ruling party newspaper has fired a barb at Washington, saying the country is ready to deliver "bitter defeat and death" to a threatening United States.

Saturday's declaration follows a warning from the International Atomic Energy Agency (IAEA) that North Korea was the closest member of U.S. President Bush's "axis of evil" to building a functional nuclear weapon.

North Korea's aggressive stance -- coupled with Washington's accusation on Friday that Iran was also "actively working" on a nuclear weapons program -- threatens to distract the U.S. as it tries to disarm Iraq. North Korea, Iran and Iraq make up Bush's so-called "axis of evil."

Condemnation has mounted against Pyongyang since it upped the ante in the nuclear row with the United States by saying on Thursday it would restart a nuclear reactor mothballed since 1994 after a deal with the then-Clinton administration.

"The DPRK [Democratic People's Republic of Korea] remains unfazed as it has made full preparations to cope with the confrontation and clash with the Yankees," a commentary in the ruling party newspaper Rodong Sinmun said.

"The army and people of the DPRK with burning hatred for the Yankees are in full readiness to fight a death-defying battle," the commentary said, carried by the North's official Korean Central News Agency.

Nuke threat 'tense'

Concerns over North Korea's nuclear ambitions have mounted since Pyongyang said earlier this week it intended to "unfreeze" its nuclear program and a demand that the IAEA remove cameras and seals from nuclear waste facilities where spent fuel rods are kept.

Speaking about the threat posed by North Korea, Mohamed ElBaradei, head of the IAEA, described the situation as "tense."

"I appealed to them to rethink their positions," ElBaradei told CNN's Christiane Amanpour. "We are waiting for their response."

ElBaradei said North Korea already has the capability to build nuclear weapons, and that Iran lagged behind, followed by Iraq.

On Friday, the U.S. accused Iran of "actively working" on a nuclear weapons program and said that recent satellite photographs of a massive nuclear power construction project "reinforce" that belief. (U.S.: Iran working on nukes)

The renewed escalation of tensions between Pyongyang and Washington follows the stopping and boarding of a North Korean vessel carrying Scud missiles to Yemen by Spanish and U.S. forces in the Arabian Sea on Wednesday.

North Korea has accused the United States of "unpardonable piracy" in seizing the ship, which eventually was allowed to continue on to Yemen. (N. Korea hits out at U.S.)

Mothballed

North Korea agreed in 1994 to freeze its nuclear facilities, at least one of which was suspected of having the capability to produce weapons-grade plutonium, in return for regular shipments of heavy fuel oil and the promise of newer and safer nuclear reactors from Japan, South Korea and the United States.

That deal averted a possible military confrontation between Pyongyang and Washington.

But North Korea said the "Agreed Framework" is no longer valid and that it is unfreezing the facilities because it needs the power generated by the nuclear plants since the fuel oil shipments were halted earlier this month.

The oil program was voided by the United States after North Korea divulged a few weeks ago that it was engaged in a "highly enriched uranium program" -- violating international agreements and the agreed framework.

ElBaradei said North Korea's response to entreaties from the IAEA has not been positive.

"I think it's much better to try to find a diplomatic solution," he said. "I'm encouraged that even Washington today is speaking of an agreed settlement."

'Unacceptable'

ElBaradei: We are waiting for their response

In a telephone conversation on Friday, President Bush and South Korean President Kim Dae Jung agreed Friday that while North Korea's decision was regrettable and unacceptable, they would work with Japan and others to resolve the situation peacefully.

"The president will continue to work in concert with our allies," White House spokesman Ari Fleischer said. "And the fact of the matter is diplomacy -- often the best diplomacy -- takes time. And that is something the president will continue to pursue." (N. Korean move 'unacceptable')

The most serious concern, ElBaradei said, is North Korea's demand for the removal of seals and cameras from the spent fuel rod storage site -- and warning that they would remove them if IAEA does not. Access to those rods, ElBaradei said, would give North Korea the material for plutonium and would be a serious breach.

"If they were to remove the seals or cameras it will be in serious violation of their non-proliferation obligation. We will have to go to the Security Council," he said.

Intent unknown

But so far, North Korea has not requested the removal of the two on-site IAEA monitors -- the last barriers to a possible crisis with North Korea and the issue that pushed the United States close to war before the Agreed Framework was signed in 1994.

"We have our inspectors still on the ground, still monitoring the freeze of North Korean nuclear activities," ElBaradei said.

North Korea is closer to having nuclear weapons than either of its "axis of evil" companions, Iran and Iraq, ElBaradei said, but stressed that he could not address the intent of any of the three countries.

South Korean protesters shout slogans during an anti-North Korea rally in downtown Seoul on Friday

"We know at least that North Korea has a reprocessing plant, a process that ... reprocesses material into plutonium," he said. "They already have the technical capability if they want to have the plutonium."

"We do not know that Iran has an enrichment or reprocessing plant in operation. They don't have that capability yet."

"We know that Iraq, at least when we left in 1998, has no capability whatsoever to produce either a weapon or weapon-usable material," he said.

White House spokesman Fleischer, however, said the administration was less concerned with North Korea than Iraq "because the situation in Iraq involves somebody who has used force in the past to attack and invade his neighbors."

"That is not the history of North Korea for the last 50 years," he said. "The world cannot just be treated as a photocopy machine: the policies in one part of the world need to be identically copied through another. It's a much more complicated endeavor than that."

-- CNN's Christiane Amanpour and John King contributed to this report.